The Psychology of NFT Value Explained

Author: Fadil Karim

Contact: insights@denarianalytics.com

April 20th 2022

NOTE: The idea’s in the article represent the theory of why NFTs have value. Theories are different to experiences. While theories may be valid, they do not necessarily equate to real world application in the same way that the theorist may hypothesize, if at all.

NFT’s are increasingly popular. There are two main spectrums of NFT appreciation. The Investment spectrum  and the Ownership spectrum. Full investment-based appreciation can be seen in the purchasing of monkey memes. Here the size of the social media following of the brand behind the NFT’s creation or ownership is assessed and a purchase is made accordingly as a profit is predicted as, the larger the following, the more likely the NFT will increase in value. Full ownership-based appreciation can be seen in the purchasing of a premium NFT that took many hours to make using software  such as Photoshop or Maya, etc. The purchaser would then use this artwork in the same way as a piece of fine art by presenting it in a gallery or house, for example. Of course, NFT investments utilise a combination of these spectrums, but the examples of the 5 minute-made memes and the 25+ hour & years of skill attainment artworks highlight the contrasting extremes of the NFT market.

Psychologically, the concept of fine art ownership is about owning the original canvas provides a direct link straight back to the artist. When an artist creates an artwork, they utilise creativity, which is regulated, like most processes in the brain, by emotional processes. This is why art enthusiasts feel a connection to artwork that they can’t fully explain. This is also why an exact replica painting of the Mona Lisa, while still a very skilful historical display, doesn’t have the same “priceless” status. The difference is that the original has a direct link to the artist who was emotionally processing while filling the canvas, allowing their emotions to be presented directly on the canvas through imagery and symbolism. It is this link that gives the canvas its unique value because our emotional processes create govern our unconscious thought processes through imagery and symbolism. In contrast, the replica is a technical display of emotional processing where the emotions of the replica artist were pinned to the goal of replication, rather than creation. The replica is just as uninteresting as the task of replication itself, whereas the original artwork task is just as interesting as the mind of the person who painted it. It is for this reason that exact replicas, regardless of the skills on show, do not possess the same value as originals even though they present the same imagery and symbolism as the original artwork. Knowledge of falsified imagery and symbolism destroys all value immediately. 

Digital art is art. Whether it be made with Photoshop, Maya, Cinema4D or any other software combinations. In fact, many people today appreciate digital art a lot more than fine art. The Mona Lisa, to me, like them, no disrespect, is a bit boring. I think this is because I don’t understand fine art. Neither emotionally, nor rationally. Emotionally, I can appreciate a show of skills, but the imagery and symbolism don’t affect me. Rationally, while I acknowledge the existence of painting skills on the canvas, I don‘t know much about specifics of painting  to fully appreciate them. 

Here lies a problem. Owning a piece of art is a desire among people of higher affluence. Many artists today are digital artists. Digital art is replicable via the copy and paste function. The desire to own art is to own the very canvas that the artist created the artwork on. If we can find a way to digitally govern ownership of the exact file that the artist exported from their software, we can then provide a direct connection to the original canvas much the same way as owning the original canvas of a piece of fine art. This is where blockchain smart contracts come into play. These smart contracts turn digital art into Non-Fungible-Tokens (NFTs). They provide this function, digitally connecting the owner to the artists original digital file. Digital governance through blockchain code prevents replication and theft.

The concept of the desire for art collection and ownership hasn’t changed from an unconscious emotional level. However, art itself has adapted to the digital age. The blockchain smart contract allows people to own these digital artworks in the same way that people can own fine art through physical purchase.

It can be argued that this is proof that masses don’t adapt to the times. The times instead adapt to the masses. The drive for art ownership has encouraged the populous to use and develop technology to facilitate this drive in the same way that the development of social media facilitated the drive for effortless sociality.

Conclusion

Valuations of most things are social. Whether that be Gold, Nasdaq or Credit Ratings. These things are valuable because enough of us agree that they are valuable. We agree to this because because of the way they make us feel. They make us feel good for various reasons, be it access to things that are intrinsically valuable regardless of societal circumstances such as water, salt and improved shelter. Art has a slightly different social value in that it makes the appreciator feel an emotional connection to it. Others than feel the same connection will value the artwork, providing a social value to it. NFTs, being art, also have this social value, hence a negative viewpoint of NFTs is likely also a negative viewpoint on social valuation as a concept. For this reason, NFTs have value because enough people say they have value and the fact that they have value and have proven to continually grow in value is all that matters for now.